The Money Files

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A blog that looks at all aspects of project and program finances from budgets and accounting to getting a pay rise and managing contracts.

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Career trends: the picture from 2014

15 Things You Should Have Done This Year on Your Project Budget

Project Cost Management: Determining Your Budget

5 Tools for Project Budgeting [video]

3 Levels of Risk Management

Career trends: the picture from 2014

Categories: research, salaries

Did you get a new job in 2014? Or are you hoping to get one next year? ESI have released a new report that looks at career trends over the last 12 months.

Starting salaries

As this in the inaugural report, ESI don’t have historical trend data on starting salaries. Even so, their assessment is interesting. In US Dollars, they report starting salaries as:

  • Graduate entry level: $38,957
  • Small project: $53,291
  • Moderate project: $64,768
  • Large, highly integrated project: $74,264

Note to self: put together justification for pay rise to present to my manager.

Getting the big money

The study found that if you want to be ‘proficient’ and earn the big bucks, you need to start off with 2 years on small projects, 5 years on medium sized projects and then 7 years on large, complex projects. That’s a career trajectory of 14 years! I hope that it doesn’t take the new project managers on my team that long to become a valuable, proficient project manager.

Note to self: plot out the career plans of the project managers in my team so they can see how they are advancing on to larger projects

Earn more with training

Just 5 days of training a year can make you a better project manager, and in turn, lead to a higher salary, the report says.

  • On small, low risk projects a week’s training can advance your career by 5 months
  • On moderate, medium risk projects, a week’s training can advance your career by 9 months
  • On large, highly integrated projects, a week’s training can advance your career by 13 months.

Targeted training can accelerate your ability to take on more complex and larger projects, jumping you ahead of your peers.

Note to self: find a course and get training booked for 2015.

Experienced PMs are in demand

Let’s say that you’ve done your time, you’ve advanced with training and you are now an experienced, proficient project manager. How hard is it to get a job?

Not very hard, according to the ESI study.

They report that it is difficult to find suitable, skilled project managers at all levels but it’s really, really hard when you want someone capable of managing a big, complex project.

  • 36% of respondents found it hard to find staff for small, low risk projects
  • 67% of respondents found it hard to find staff for moderate, medium risk projects
  • 88% of staff of respondents found it hard to find staff for large, highly integrated projects.

So there should be plenty of opportunities around for people at the experienced end of the scale, if you are able to take the time to seek them out.

Note to self:  update CV for all those great opportunities!

What are your career goals for the next 12 months? Share your thoughts in the comments below.

Posted on: December 12, 2014 06:43 AM | Permalink | Comments (0)

15 Things You Should Have Done This Year on Your Project Budget

Categories: budget

And as another year draws to a close it’s time for some reflection. With all the rushing and deadlines and pressure to get tasks done, how well did you do with hitting all the best practices you know you should have?

Here are 15 things that you should have done this year related to your project budget. How many can you tick off and say with confidence that you achieved?

1. Set a baseline

The cost baseline is your marker in time for how your project financials look. It should be a snapshot of your approved budget. Use it to track your actual expenditure and then compare. Ideally, your baseline should end up a close reflection of your actual costs but if not at least it will help you identify where you hit problems.

2. Agreed contingency

Did you talk to your sponsor about the contingency levels for this project? Contingency gives you some comfort and flexibility. Although you should still make it clear and ask permission if required when you come to use it, having a pot there to deal with unforeseen issues is very helpful.

Contingency should be based on what you think you’ll need to manage the things you don’t know, based on an assessment of project risk.

3. Agreed a management reserve

Management reserves are normally calculated by the back of an envelope method but they are useful pots, especially if you are working on something which is innovative or unusual for your company. These reserves are emergency money only to be used in difficult situations, and you should get your sponsor’s permission before dipping in.

Read more about the difference between management reserves and contingency reserves.

4. Got it approved

You did get your budget approved this year, didn’t you? Good.

5. Tracked project management costs

You should be tracking all the costs on your projects and it’s useful to split out prject management costs (the overheads) from the delivery costs (see below). Project management costs cover the cost of doing the project – your time, your project team’s time, any short term, project specific things you need to get the project completed like temporary office space.

6.  Tracked project delivery costs

Project delivery costs are related to what it is that your project is delivering. These could include software licences, fixtures and fittings for the new building and so on. They are what you normally think of when you work out a project budget and should be clear from your work breakdown structure.

Read more about the 5 different types of project costs.

7. Allocated some cash for rewarding the team

If your project was due to end this year did you put some money aside as part of your closing activities to celebrate? I hope so. It’s good to be able to reward the team for a job well done and it doesn’t cost much to go out for a meal to mark the end of a project.

Haven’t got any budget for this? Read more about how to motivate your team with spending anything.

8. Calculated the risk budget

Each risk should have mitigating actions. These will either make the risk less likely or less impactful should it happen (in the case of a negative risk) or more likely to happen or more impactful (in the case of a positive risk). The risk budget covers the cost of the tasks required to achieve this.

Read more about the 4 factors that make a project risky.

9. Shared it

Did you talk to your team regularly about the project budget and their performance against it? If not plan to do this as part of your team meetings next year. It’s a really good idea because it helps the team see how their work directly relates to cost and achieving the project’s goals.

10. Estimated it

How did you pull together your project estimates this year? Hopefully with input from the right people and using a selection of tools to give you the best, most accurate results. Watch this video on 4 pitfalls of project estimating and see if you can spot anything you did that you should be avoiding in 2015.

11.  Agreed tolerances

Tolerances are great and one of the things I get sorted at the beginning of a project. They give you boundaries in which to work – amounts over and under the budget (and dates on the schedule) that you can come in on without needing management approval. Did you sort that out? No? Talk to your sponsor in January: it will make your life less stressful and give you clearer authority.

12. Set up change control processes

Hopefully your project change control processes are already in place but if not, you should have created a process specifically for your project and…

13. Approved changes

…made sure that any of the changes that you needed to put through on your project went through it. This should include a step to estimate the cost and make the necessary changes to your project budget to account for the addition or removal of work.

14. Reported it

Your project budget and progress against your targets should have been included in your project status reports. This is, after all, the one thing that most sponsors care about above all else. Make it easy for them by including the data on your reports along with ways to get more detail if they really want to dig into it.

Learn more about producing better project status reports.

15. Closed contracts

Did any deals with suppliers come to an end this year? You should have formally closed down the contracts. This draws a line under the work and makes closing out the project easier, as well as giving you a better position from which to handover the project deliverables to the operational team.

Learn more about the different types of project contracts.

If you didn’t manage to say ‘Yes’ to the whole list then that could be because the item wasn’t relevant to your project. Or it could be because you didn’t have time or the skills to get that task done.

If it’s a time and skill problem think about what you are going to do differently during 2015. Maybe you could ask your manager for training? Set yourself some goals now so that you can reflect on this list again in 12 months and feel confident in your ability to manage your project’s finances.

Posted on: December 12, 2014 06:17 AM | Permalink | Comments (0)

Project Cost Management: Determining Your Budget

Categories: budget

The last part of this ongoing series on project cost management looked at the estimating process. Today we’re going to look at how to determine your budget.

What’s the process for?

This process is where you establish the overall cost of the project. At the end of the process you’ll have the following outputs:

  • Cost baseline
  • Project funding requirements
  • Project documents updates (these crop up in lots of processes and simply mean that you update any other documents that need to know the overall project budget).

So what goes into creating a budget?

The inputs

You’ll need lots of information in order to start putting together your overall project budget. There are 9 inputs to this process and they are:

Cost management plan

The cost management plan sets out how you are going to manage the project’s finances, and it helps to give you the framework for creating your budget.

Scope baseline

This is essential for working out how much the project will cost – you can’t do the calculations unless you know what is in scope. Use the scope baseline to make sure that you don’t forget to cost any elements of the project. Your Work Breakdown Structure is a massive help here and probably the document that I would rely on the most to ensure everything is accounted for.

Activity cost estimates

These tell you how much effort and money is required for each activity, building on the detail in the scope baseline. You can already see how adding these up is going to give you the overall project budget, so it pays to do the work in earlier processes to get these as good as you can.

Basis of estimates

This just explains the assumptions around your estimates. It’s useful when it comes to the overall project budget because it helps you determine what, if any, contingency you should add. These assumptions are often circulated with the final budget because they help other people understand if things like indirect costs are included.

Project schedule

This is helpful if you have to account for work phases. You could, for example, create a budget for the first stage of the project and then a second budget for the next chunk of activity. These would then be added together to give you your overall budget. If your sponsor only wants to authorise the initial work you can use the schedule to establish what should be in and what should be out of that.

It can also be useful if you are expected to calculate the project’s costs in any given financial year or reporting period. Roll up the estimates into date-constrained packages to give you the total cost over a certain time.

Resource calendars

These are only really useful if you have to include resource costs in the project budget. If you are working mainly with internal resources you’ll find that you don’t often need this data. However, if you are cross-charging a client for your time then you’ll definitely find it helpful to check who is working on what and what their daily rate is.

Risk register

The risk register may include details of the cost of risk mitigation activities. Pull these out and put them in your project budget as well. Many a project comes unstuck because risks were identified but there was no money put aside to mitigate potential problems.

Agreements

These are the contracts relating to what goods and services you require as part of this project. They may also relate to things that have already been purchased. These costs also need to be included in the budget and having the original documents can help because it’s useful to cross-check to see what taxes, delivery charges and other elements have been added in to the quote.

Organisational process assets.

These appear as an input to lots of processes but in this scenario we are referring to:

  • Budgeting policies that will help you budget in accordance to your company’s guidelines
  • Tools such as spreadsheets or accountancy packages, or your project management software
  • Reporting processes or tools to report the budget once it’s finalised.

Tools and techniques

The tools are techniques for the Determine Budget process aren’t rocket science. In fact, the whole process is really about adding up your estimates, making sure nothing is overlooked and then presenting the total as a summary figure.

Having said that, it does help to work through the process because it is remarkably easy to overlook something and getting the budget wrong is embarrassing (trust me, I’ve been there).

The tools and techniques you can draw on to prepare your project budget are:

  • Cost aggregation
  • Reserve analysis
  • Expert judgement
  • Historical relationships
  • Funding limit reconciliation.

I cover these in more detail in this video on 5 tools for project budgeting.

The end result

The main output of this process is the cost baseline. This is the approved, time-phased budget for the project but it does not include management reserves. You use this cost baseline as a snapshot in time and compare it against actual expenditure.

What works for you when preparing your final project budget? Let us know your tips in the comments.

Posted on: December 02, 2014 10:00 AM | Permalink | Comments (4)

5 Tools for Project Budgeting [video]

Categories: budget

Posted on: November 28, 2014 08:45 AM | Permalink | Comments (2)

3 Levels of Risk Management

Categories: events

At the PMI Hungary Chapter international Art of Projects conference in Budapest this month, Rick Graham spoke about risk management in the globalised world. He talked about how Monte Carlo analysis is used to establish risk and how companies gather sophisticated data to make good decisions about the actions they need to take as a result of identifying risk.

Rick said that there are three levels of risk management that apply to projects.

1. Project risk

This is perhaps the most obvious. These risks do not recognise interdependencies and risks outside the scope of the project. Rick recommended doing Monte Carlo analysis at this level to identify project risk. He also talked about scenario building as a good tool for project risk identification and management, giving the example of Shell.

Shell was the only company which modelled the risk of the OPEC countries putting up the price of oil. Because of their analysis they were able to adapt their plants to deal with less refined oil and gained a two-year head start on the competition when the prices did go up.

Rick recommended “building limited models around sensitive areas”: in other words, not spending time on modelling when the risk is low or when it isn’t worth doing. Models and analysis help explain the risk you are taking at the project level in comparative terms, which helps set them in context for team members and stakeholders.

2. Project selection risk

At this level the question relates to how risk plays a part in making decisions about which projects should be started. The challenge here is whether the business just says yes or no to a project without looking at the overall position and the wider business requirements.

For example, a risky project may not be inherently bad for the business. If you always say no to risky projects you end up with a portfolio full of low risk but also probably low benefit projects that present reduced opportunities for the company.

This level links to the strategic objectives and how the deliverables will be achieved in the organisational context.

It should also include the risk of not doing or deferring the project, as that decision presents a different path forward for the business with its own challenges.

3. Project portfolio risk

This is where you start to look outside the projects as individual initiatives and start to gather rich data about the organisation’s approach to risk management as a whole.

Rick recommended doing Monte Carlo analysis at programme level to identify risks across dependent streams of work. He then talked about using this output to identify the right combination of projects to work on at portfolio level.

The problem I found with this model is that there isn’t any level that I can see where risks fit that fall outside the project but that are managed in some shape or form by the project manager. For example, dependencies on other projects – the risk that the other project may not deliver on time. Or the risk that the company might go bust – this is out of scope of the project but something like this could feasibly be on your risk register.

This model also assumes that you have a process to apply risk management to.

Rick said that you can only do portfolio level risk management if there is one single repository of project data. This isn’t the case in many businesses where project managers are based in functional silos and even if there is a PMO it serves one business unit and not the enterprise as a whole.

A spreadsheet is good enough for this: no need to invest in anything more complicated, he said. You can start to put some science behind your spreadsheet once you have everything documented in one place.

Do you measure and manage risk at these three levels? Let us know how it works for you in the comments.

Posted on: November 08, 2014 10:59 AM | Permalink | Comments (3)
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